By Kehinde Ibrahim, Lagos
THE Central Bank of Nigeria (CBN) recently intensified its campaign against insider lending, warning that bank directors who violate regulatory limits on credit facilities to related parties risk losing their board positions as the regulator moves to strengthen corporate governance and protect depositors’ funds.
The enforcement drive marks a significant development in the banking sector following the recapitalisation exercise that saw financial institutions raise about N4.65 trillion to meet higher minimum capital requirements. With some bank owners, shareholders and directors reportedly exiting the system amid tighter regulatory scrutiny, the CBN is making it clear that financial strength must be matched by responsible management, transparent lending practices and effective board oversight.
At the heart of the regulator’s concerns is the practice of granting loans to individuals and businesses connected to a bank’s ownership or management. Although insider lending is not inherently illegal, it becomes a serious threat when personal interests override established credit procedures, regulatory limits are breached or borrowers receive preferential treatment that exposes depositors’ funds to unnecessary risks.
The CBN’s position is that a well-capitalised bank can still fail if its directors allow conflicts of interest, weak credit administration and poor governance to undermine its operations. Consequently, the latest crackdown signals a shift towards stricter accountability, with the regulator warning that those responsible for violations could face consequences extending beyond financial penalties.
Speaking at the 38th Seminar for Finance Correspondents and Business Editors, the CBN’s Director of Banking Supervision, Dr Olubukola Akinwunmi, warned that directors who persist in violating insider-credit regulations risk losing their positions on bank boards.
He said the apex bank would sustain its enforcement of limits on lending to directors, major shareholders and their associated entities, stressing that sound corporate governance remained fundamental to the stability of the banking system.
Although Akinwunmi did not identify the individuals or institutions affected by the enforcement measures, his remarks underscored the regulator’s determination to address practices that could weaken financial institutions from within.
The CBN’s warning also reinforces its broader message that recapitalisation, while necessary, cannot substitute for responsible leadership. Banks must demonstrate that their enlarged capital bases are supported by prudent lending decisions, effective risk management and boards capable of challenging questionable transactions.
At the seminar, the banking supervision director warned that governance failures could undermine the gains expected from recapitalisation.
“If there is poor corporate governance, if insider credit pervades the industry, in a short time we will all live to see a repeat of the problem that we have battled or we have dealt with through recapitalisation,” he said.
The warning highlights a central concern for the Nigerian banking industry: whether institutions that have strengthened their capital positions can also address the governance weaknesses that have historically contributed to financial distress.
Insider lending refers to credit facilities granted by a bank to individuals or businesses connected to its ownership, management or directors. These may include board members, senior executives, major shareholders and companies they own, control or otherwise influence.
Such transactions are not automatically improper. Banks may lend to connected individuals and businesses where the facilities comply with regulatory requirements, undergo independent assessment, carry appropriate pricing and collateral, and meet the institution’s normal credit standards.
The problem arises when a borrower’s relationship with the bank influences the terms or approval of a loan.
For instance, a director who owns a company may attempt to influence the approval of a multibillion-naira facility for that business without the rigorous credit assessment applied to other customers. The loan may be approved with inadequate collateral, relaxed repayment conditions or insufficient consideration of the borrower’s capacity to repay.
Where the business subsequently experiences financial difficulties, the bank may struggle to recover the funds. If the exposure is substantial, the resulting losses could weaken the institution’s capital position and constrain its ability to meet other financial obligations.
The risks become more pronounced when several connected companies receive large facilities from the same bank. Although the loans may be recorded as separate transactions, they could expose the institution to a common business group or related economic risks.
If the borrower’s businesses deteriorate simultaneously, the bank may face a concentration of non-performing loans that is difficult to absorb, even where it initially appeared adequately capitalised.
Another concern is that insider-related facilities may receive less scrutiny than ordinary commercial loans. Directors or executives with significant influence may discourage credit officers from raising concerns, delay the recognition of bad loans or resist efforts to recover outstanding debts.
Such practices undermine internal controls and create an environment in which the interests of influential individuals take precedence over those of depositors, minority shareholders and other stakeholders.
For the CBN, therefore, insider lending is not merely an issue of regulatory compliance. It is a potential channel through which private interests can compromise the financial health of institutions entrusted with managing public savings.
The current enforcement drive is backed by the CBN’s February 2025 circular titled Compliance with Insider-Related Credit Limits, which required banks to address credit facilities that exceeded statutory limits.
The directive gave banks 180 days to regularise facilities that breached the requirements prescribed under Section 19(5) of the Banks and Other Financial Institutions Act (BOFIA) 2020.
Under the provisions, credit facilities to an individual director are limited to five per cent of a bank’s paid-up capital, while aggregate insider-related credit facilities must not exceed 10 per cent.
These limits are intended to prevent banks from concentrating excessive amounts of their resources among individuals and businesses connected to their ownership or management.
The directive also required financial institutions to submit periodic reports detailing their insider-lending portfolios and the steps being taken to achieve compliance.
More significantly, the CBN directed that directors with non-performing insider-related credit facilities should immediately step down from their board positions.
Banks were also required to commence remedial action on such facilities, including recovering outstanding debts, enforcing collateral and, where necessary, using shareholdings as part of recovery efforts.
The measures reflect the regulator’s determination to ensure that directors cannot continue to exercise oversight over banks while maintaining non-performing credit relationships that fall within the scope of the directive.
The circular also sought to address a regulatory weakness involving some insider facilities that had previously received CBN approval without clearly defined compliance timelines. By requiring banks to regularise such exposures within a specified period, the regulator aimed to limit opportunities for prolonged non-compliance.
The latest warning from Akinwunmi suggests that the directive is being enforced with greater urgency, with consequences for individuals and institutions that fail to meet the requirements.
For bank directors, the implications are substantial. Their responsibilities extend beyond attending board meetings or approving corporate strategies. They must ensure that the institutions they oversee comply with lending regulations, maintain effective risk controls and protect the interests of depositors.
Where related-party transactions breach the rules, directors cannot assume that their positions or shareholdings will shield them from regulatory action.
The CBN’s approach also places pressure on bank management to identify existing breaches, improve disclosure and take corrective action before questionable exposures become a source of financial instability.
The crackdown comes against the backdrop of the banking sector’s recapitalisation exercise, which required institutions to raise additional capital to meet higher minimum requirements.
Nigerian banks raised about N4.65 trillion through the exercise, strengthening their capacity to absorb losses, expand lending and support economic activities.
The recapitalisation programme was designed to improve the resilience of the financial system and position banks to finance businesses, infrastructure and other productive sectors of the economy.
However, the CBN has repeatedly emphasised that capital adequacy alone does not guarantee financial stability.
A bank may meet its minimum capital requirement and still accumulate significant losses if its lending decisions are poor, its risk-management systems are ineffective or its directors allow conflicts of interest to influence business decisions.
Capital provides a buffer against losses; it does not prevent those losses from occurring.
Where insider-related loans deteriorate, the bank may have to make provisions that reduce profits and erode capital. If the exposures are sufficiently large, the institution could face liquidity pressures, restrictions on lending and declining confidence among depositors and investors.
The danger is particularly significant where management delays recognising bad loans or fails to pursue recovery because of the borrowers’ connections to influential shareholders.
Akinwunmi’s warning therefore places governance at the centre of the post-recapitalisation agenda.
The regulator expects banks to demonstrate that the capital they have raised will be managed prudently and not exposed to avoidable risks arising from insider transactions.
For the industry, this means that the success of recapitalisation will depend on more than the amount of money raised. It will also depend on the quality of lending decisions, the independence of boards and the willingness of management to enforce credit standards consistently.
The CBN’s enforcement of insider-credit limits is supported by its Corporate Governance Guidelines for commercial, merchant, non-interest and payment service banks, as well as financial holding companies, which became effective on August 1, 2023.
The guidelines establish requirements covering board composition and independence, risk governance, internal controls, ethical conduct, accountability and the responsibilities of directors and senior management.
Under the framework, bank boards are expected to provide effective oversight of management, approve policies that define the institution’s risk appetite and ensure that lending activities comply with applicable laws and regulatory requirements.
They must also monitor related-party transactions, manage conflicts of interest and ensure that internal audit, compliance and risk-management functions can operate independently.
These safeguards are essential in institutions where influential shareholders have substantial business interests outside the banking sector.
Without effective controls, a director may be able to influence the approval of loans to affiliated companies or prevent the institution from taking appropriate action against a connected borrower.
A board that fails to challenge such conduct risks compromising its responsibility to protect the bank and its stakeholders.
Effective governance requires directors to ask difficult questions about large exposures, demand credible evidence of borrowers’ repayment capacity and ensure that credit decisions are supported by appropriate documentation.
It also requires management to maintain accurate records of related-party transactions and report material breaches promptly.
The CBN’s latest position suggests that the regulator will place greater emphasis on whether these safeguards work in practice, rather than whether banks have formally adopted governance policies.
This distinction is important because the existence of a policy does not guarantee compliance. A bank may have an established risk-management framework but still experience serious governance failures if directors or senior executives are allowed to disregard its provisions.
The independence of board members is therefore crucial. Directors must be able to challenge management decisions and protect the institution’s long-term interests, even when doing so conflicts with the preferences of influential shareholders.
The CBN’s broader regulatory reforms also point towards closer scrutiny of the relationship between risk-taking, governance and capital adequacy.
In March 2026, the apex bank issued Guidelines on Risk-Based Capital Requirements pursuant to Sections 13 and 63 of BOFIA 2020.
The framework moves beyond a uniform minimum-capital approach by linking capital requirements more closely to the risks individual banks undertake.
Under a risk-based system, institutions with higher risk profiles may be required to maintain stronger capital buffers to reflect their exposures and the potential losses associated with their activities.
Significant credit concentrations, foreign-exchange exposures, complex operations and weaknesses in risk management can influence the level of capital needed to support a bank’s business.
The objective is to ensure that banks maintain capital commensurate with their risk profiles instead of relying exclusively on minimum regulatory thresholds.
Insider lending is relevant to this framework because excessive related-party exposures can create concentrated risks, particularly where loans are extended to businesses with common ownership or interconnected financial interests.
If several facilities become non-performing at the same time, the resulting losses could place significant pressure on a bank’s capital position.
Weak governance can compound the problem by delaying the recognition of bad loans or preventing the timely enforcement of repayment obligations.
A risk-based supervisory approach therefore requires regulators to look beyond reported capital ratios and examine the quality of banks’ assets, the concentration of their exposures and the effectiveness of their internal controls.
For financial institutions, the implication is that raising capital must be accompanied by stronger credit administration, transparent reporting and effective monitoring of connected borrowers.
The framework also reinforces the need for banks to assess the risks associated with their lending decisions rather than assuming that a larger capital base will automatically protect them against poor credit quality.
The intensified enforcement of insider-lending rules is likely to increase pressure on bank owners, directors and major shareholders to review their credit exposures and business relationships with the institutions they control.
Where facilities exceed regulatory limits, banks must take appropriate corrective action in line with the applicable requirements. This may involve recovering outstanding debts, enforcing collateral or taking other steps to regularise the exposures.
Directors with non-performing insider-related facilities could also face consequences for their continued participation in board activities.
The measures raise important questions about the relationship between ownership and management in Nigeria’s banking industry.
Shareholders are entitled to expect returns on their investments, but their interests must not compromise the prudent management of depositors’ funds. Similarly, directors who own or control companies seeking loans from their banks must ensure that such transactions are handled transparently and in accordance with established credit procedures.
A related-party transaction should be assessed on its merits, with the borrower’s repayment capacity, collateral, pricing and other relevant considerations examined independently.
Where conflicts of interest exist, banks must have procedures to manage them without compromising the integrity of the lending process.
For minority shareholders, stricter enforcement could help protect the value of their investments by reducing the risk that bank resources will be diverted towards poorly assessed or preferentially treated borrowers.
For depositors, the measures are intended to strengthen confidence that their funds are being managed prudently.
For the wider economy, a more disciplined banking system could improve the allocation of credit by ensuring that lending decisions are based on commercial considerations rather than personal connections.
However, the effectiveness of the crackdown will depend on whether the rules are applied consistently across institutions and regardless of the influence of the individuals involved.
Despite the regulatory measures, identifying and addressing insider lending can be challenging, particularly where ownership structures are complex or borrowers operate through several related companies.
Banks must therefore maintain accurate records of connected parties, disclose relevant interests and ensure that their credit-monitoring systems can identify exposures that fall within the scope of regulatory limits.
The CBN will also need effective supervisory processes to verify compliance and determine whether banks have taken adequate corrective action.
The independence of internal audit, compliance and risk-management departments will remain critical to identifying violations before they develop into significant financial problems.
Where breaches occur, prompt action will be necessary to demonstrate that regulatory requirements apply equally to influential shareholders, directors and other borrowers.
Consistent enforcement would help distinguish legitimate related-party transactions from facilities that expose depositors’ funds to unnecessary risks.
There is also a need to ensure that enforcement decisions remain transparent and are guided by established rules and credible evidence. Such an approach would strengthen confidence in the regulator’s actions while reinforcing accountability across the industry.
Ultimately, the CBN’s campaign is testing whether Nigeria’s banking industry can combine stronger capitalisation with a more disciplined governance culture.
The recapitalisation exercise has increased the financial resources available to banks, but the long-term benefits will depend on how those resources are managed.
If insider lending remains poorly controlled, additional capital could be undermined by bad loans, excessive credit concentrations and weak accountability. Conversely, effective governance and prudent lending could help banks use their stronger capital positions to support economic growth while managing risks more responsibly.
The regulator’s latest warning therefore sends a clear message to bank owners and directors: meeting capital requirements is only one part of their responsibility. They must also ensure that their institutions are managed in accordance with the law and that credit decisions protect the interests of depositors and shareholders.
As the CBN intensifies its oversight of related-party lending, directors will face greater pressure to demonstrate that their decisions are guided by sound banking principles rather than personal or commercial interests.
The ultimate test will be whether the enforcement drive produces measurable improvements in credit quality, corporate governance and public confidence.
For Nigeria’s banking industry, the stakes extend beyond the positions of individual directors. They concern the credibility of the financial system, the safety of depositors’ funds and the ability of banks to sustain their role in financing the economy.
The message from the CBN is increasingly clear: stronger capital must be matched by stronger governance, and no director should regard a bank’s resources as an extension of personal business interests.
